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Torrent Pharmaceuticals Q3 FY12 results update by Nirmal Bang

Contributed by Nirmal Bang

By Nirmal Bang

Results below expectations

Torrent Pharmaceuticals results were below expectations as the company reported Adjusted PAT of Rs 60.2 cr (net notional loss) as against the consensus expectation of Rs 86.0 cr. Sales grew by 21% yoy at Rs 696.6 cr. Domestic business is still sluggish which slowed down the overall growth of the company.

Key Highlights

- Q3FY12 includes Rs 9.4 cr of licensing income in other operating income as compared to Rs 0.6 cr in Q3FY11 and Rs 9.6 cr in Q2FY12

- The company reported notable growth of 35.8% yoy in international business mainly driven by US business (67% yoy growth) and Brazil (27% yoy growth). India business grew by mere 7.7% yoy because of weak acute therapy sales. We expect domestic business to lag for one quarter before start picking up in Q1FY13.

- EBITDA margin has declined to 17.4% in Q3FY12 (19% in Q2FY12 & 19.9% in Q3FY11) due to sluggish domestic revenue, forex loss (in other expenses), and high employee cost. We expect EBITDA margins to improve from Q1FY13, as Q4 is a seasonally weak quarter for the company.

- During the quarter, the company recorded Rs 18 cr of forex loss (in other expenses). This is the realized forex loss as the company routes the MTM adjustment to balance sheet after adopting the AS30 from 1st April’11. Net notional loss during the quarter was Rs 22.9 cr.

- The company filed three ANDAs during the quarter taking the cumulative filings to 65 out of which 31 are pending approvals. Torrent launched one product (Olanzapine) in US and three new products in Brazil. It is expected to launch another four products in Brazil in next six months.

Valuation & Recommendation

We are not making any changes in our model. We believe the company is still in investment mode and haven’t started gaining the real benefits of its past investments yet.

We believe there is limited downside risk from here. We continue to remain bullish on the company.

At CMP, the stock is trading at a PE of 13.3x FY12E and 11.4.x FY13E EPS that looks attractive. We recommend BUY on the stock with price target of Rs 725, potential upside of 32% from current levels.